[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.501(c)(3)-1]

[Page 11-17]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.501(c)(3)-1  Organizations organized and operated for religious, 

charitable, scientific, testing for public safety, literary, or 
educational purposes, or for the prevention of cruelty to children or animals.

    (a) Organizational and operational tests. (1) In order to be exempt 
as an organization described in section 501(c)(3), an organization must 
be both organized and operated exclusively for one or more of the 
purposes specified in such section. If an organization fails to meet 
either the organizational test or the operational test, it is not 
exempt.
    (2) The term exempt purpose or purposes, as used in this section, 
means any purpose or purposes specified in section 501(c)(3), as defined 
and elaborated in paragraph (d) of this section.
    (b) Organizational test--(1) In general. (i) An organization is 
organized exclusively for one or more exempt purposes only if its 
articles of organization (referred to in this section as its articles) 
as defined in subparagraph (2) of this paragraph:
    (a) Limit the purposes of such organization to one or more exempt 
purposes; and
    (b) Do not expressly empower the organization to engage, otherwise 
than as an insubstantial part of its activities, in activities which in 
themselves are not in furtherance of one or more exempt purposes.
    (ii) In meeting the organizational test, the organization's 
purposes, as stated in its articles, may be as broad as, or more 
specific than, the purposes stated in section 501(c)(3). Therefore, an 
organization which, by the terms of its articles, is formed for literary 
and scientific purposes within the meaning of section 501(c)(3) of the 
Code shall, if it otherwise meets the requirements in this paragraph, be 
considered to have met the organizational test. Similarly, articles 
stating that the organization is created solely to receive contributions 
and pay them over to organizations which are described in section 
501(c)(3) and exempt from taxation under section 501(a)) are sufficient 
for purposes of the organizational test. Moreover, it is sufficient if 
the articles set for the purpose of the organization to be the operation 
of a school for adult education and describe in detail the manner of the 
operation of such school. In addition, if the articles state that the 
organization is formed for charitable purposes, such articles ordinarily 
shall be sufficient for purposes of the organizational test (see 
subparagraph (5) of this paragraph for rules relating to construction of 
terms).
    (iii) An organization is not organized exclusively for one or more 
exempt purposes if its articles expressly empower it to carry on, 
otherwise than as an insubstantial part of its activities, activities 
which are not in furtherance of one or more exempt purposes, even though 
such organization is, by the terms of such articles, created for a 
purpose that is no broader than the

[[Page 12]]

purposes specified in section 501(c)(3). Thus, an organization that is 
empowered by its articles to engage in a manufacturing business, or to 
engage in the operation of a social club does not meet the 
organizational test regardless of the fact that its articles may state 
that such organization is created for charitable purposes within the 
meaning of section 501(c)(3) of the Code.
    (iv) In no case shall an organization be considered to be organized 
exclusively for one or more exempt purposes, if, by the terms of its 
articles, the purposes for which such organization is created are 
broader than the purposes specified in section 501(c)(3). The fact that 
the actual operations of such an organization have been exclusively in 
furtherance of one or more exempt purposes shall not be sufficient to 
permit the organization to meet the organizational test. Similarly, such 
an organization will not meet the organizational test as a result of 
statements or other evidence that the members thereof intend to operate 
only in furtherance of one or more exempt purposes.
    (v) An organization must, in order to establish its exemption, 
submit a detailed statement of its proposed activities with and as a 
part of its application for exemption (see paragraph (b) of Sec. 
1.501(a)-1).
    (2) Articles of organization. For purposes of this section, the term 
articles of organization or articles includes the trust instrument, the 
corporate charter, the articles of association, or any other written 
instrument by which an organization is created.
    (3) Authorization of legislative or political activities. An 
organization is not organized exclusively for one or more exempt 
purposes if its articles expressly empower it:
    (i) To devote more than an insubstantial part of its activities to 
attempting to influence legislation by propaganda or otherwise; or
    (ii) Directly or indirectly to participate in, or intervene in 
(including the publishing or distributing of statements), any political 
campaign on behalf of or in opposition to any candidate for public 
office; or
    (iii) To have objectives and to engage in activities which 
characterize it as an action organization as defined in paragraph (c)(3) 
of this section.

The terms used in subdivisions (i), (ii), and (iii) of this subparagraph 
shall have the meanings provided in paragraph (c)(3) of this section. An 
organization's articles will not violate the provisions of paragraph 
(b)(3)(i) of this section even though the organization's articles 
expressly empower it to make the election provided for in section 501(h) 
with respect to influencing legislation and, only if it so elects, to 
make lobbying or grass roots expenditures that do not normally exceed 
the ceiling amounts prescribed by section 501(h)(2) (B) and (D).
    (4) Distribution of assets on dissolution. An organization is not 
organized exclusively for one or more exempt purposes unless its assets 
are dedicated to an exempt purpose. An organization's assets will be 
considered dedicated to an exempt purpose, for example, if, upon 
dissolution, such assets would, by reason of a provision in the 
organization's articles or by operation of law, be distributed for one 
or more exempt purposes, or to the Federal Government, or to a State or 
local government, for a public purpose, or would be distributed by a 
court to another organization to be used in such manner as in the 
judgment of the court will best accomplish the general purposes for 
which the dissolved organization was organized. However, an organization 
does not meet the organizational test if its articles or the law of the 
State in which it was created provide that its assets would, upon 
dissolution, be distributed to its members or shareholders.
    (5) Construction of terms. The law of the State in which an 
organization is created shall be controlling in construing the terms of 
its articles. However, any organization which contends that such terms 
have under State law a different meaning from their generally accepted 
meaning must establish such special meaning by clear and convincing 
reference to relevant court decisions, opinions of the State attorney-
general, or other evidence of applicable State law.
    (6) Applicability of the organizational test. A determination by the 
Commissioner or a district director that an organization is described in 
section

[[Page 13]]

501(c)(3) and exempt under section 501(a) will not be granted after July 
26, 1959 (regardless of when the application is filed), unless such 
organization meets the organizational test prescribed by this paragraph. 
If, before July 27, 1959, an organization has been determined by the 
Commissioner or district director to be exempt as an organization 
described in section 501(c)(3) or in a corresponding provision of prior 
law and such determination has not been revoked before such date, the 
fact that such organization does not meet the organizational test 
prescribed by this paragraph shall not be a basis for revoking such 
determination. Accordingly, an organization which has been determined to 
be exempt before July 27, 1959, and which does not seek a new 
determination of exemption is not required to amend its articles of 
organization to conform to the rules of this paragraph, but any 
organization which seeks a determination of exemption after July 26, 
1959, must have articles of organization which meet the rules of this 
paragraph. For the rules relating to whether an organization determined 
to be exempt before July 27, 1959, is organized exclusively for one or 
more exempt purposes, see 26 CFR (1939) 39.101(6)-1 (Regulations 118) as 
made applicable to the Code by Treasury Decision 6091, approved August 
16, 1954 (19 FR 5167; C.B. 1954-2, 47).
    (c) Operational test--(1) Primary activities. An organization will 
be regarded as operated exclusively for one or more exempt purposes only 
if it engages primarily in activities which accomplish one or more of 
such exempt purposes specified in section 501(c)(3). An organization 
will not be so regarded if more than an insubstantial part of its 
activities is not in furtherance of an exempt purpose.
    (2) Distribution of earnings. An organization is not operated 
exclusively for one or more exempt purposes if its net earnings inure in 
whole or in part to the benefit of private shareholders or individuals. 
For the definition of the words private shareholder or individual, see 
paragraph (c) of Sec. 1.501(a)-1.
    (3) Action organizations. (i) An organization is not operated 
exclusively for one or more exempt purposes if it is an action 
organization as defined in subdivisions (ii), (iii), or (iv) of this 
subparagraph.
    (ii) An organization is an action organization if a substantial part 
of its activities is attempting to influence legislation by propaganda 
or otherwise. For this purpose, an organization will be regarded as 
attempting to influence legislation if the organization:
    (a) Contacts, or urges the public to contact, members of a 
legislative body for the purpose of proposing, supporting, or opposing 
legislation; or
    (b) Advocates the adoption or rejection of legislation.

The term legislation, as used in this subdivision, includes action by 
the Congress, by any State legislature, by any local council or similar 
governing body, or by the public in a referendum, initiative, 
constitutional amendment, or similar procedure. An organization will not 
fail to meet the operational test merely because it advocates, as an 
insubstantial part of its activities, the adoption or rejection of 
legislation. An organization for which the expenditure test election of 
section 501(h) is in effect for a taxable year will not be considered an 
action organization by reason of this paragraph (c)(3)(ii) for that year 
if it is not denied exemption from taxation under section 501(a) by 
reason of section 501(h).
    (iii) An organization is an action organization if it participates 
or intervenes, directly or indirectly, in any political campaign on 
behalf of or in opposition to any candidate for public office.

The term candidate for public office means an individual who offers 
himself, or is proposed by others, as a contestant for an elective 
public office, whether such office be national, State, or local. 
Activities which constitute participation or intervention in a political 
campaign on behalf of or in opposition to a candidate include, but are 
not limited to, the publication or distribution of written or printed 
statements or the making of oral statements on behalf of or in 
opposition to such a candidate.
    (iv) An organization is an action organization if it has the 
following two characteristics: (a) Its main or primary

[[Page 14]]

objective or objectives (as distinguished from its incidental or 
secondary objectives) may be attained only by legislation or a defeat of 
proposed legislation; and (b) it advocates, or campaigns for, the 
attainment of such main or primary objective or objectives as 
distinguished from engaging in nonpartisan analysis, study, or research 
and making the results thereof available to the public. In determining 
whether an organization has such characteristics, all the surrounding 
facts and circumstances, including the articles and all activities of 
the organization, are to be considered.
    (v) An action organization, described in subdivisions (ii) or (iv) 
of this subparagraph, though it cannot qualify under section 501(c)(3), 
may nevertheless qualify as a social welfare organization under section 
501(c)(4) if it meets the requirements set out in paragraph (a) of Sec. 
1.501(c)(4)-1.
    (d) Exempt purposes--(1) In general. (i) An organization may be 
exempt as an organization described in section 501(c)(3) if it is 
organized and operated exclusively for one or more of the following 
purposes:
    (a) Religious,
    (b) Charitable,
    (c) Scientific,
    (d) Testing for public safety,
    (e) Literary,
    (f) Educational, or
    (g) Prevention of cruelty to children or animals.
    (ii) An organization is not organized or operated exclusively for 
one or more of the purposes specified in subdivision (i) of this 
subparagraph unless it serves a public rather than a private interest. 
Thus, to meet the requirement of this subdivision, it is necessary for 
an organization to establish that it is not organized or operated for 
the benefit of private interests such as designated individuals, the 
creator or his family, shareholders of the organization, or persons 
controlled, directly or indirectly, by such private interests.
    (iii) Since each of the purposes specified in subdivision (i) of 
this subparagraph is an exempt purpose in itself, an organization may be 
exempt if it is organized and operated exclusively for any one or more 
of such purposes. If, in fact, an organization is organized and operated 
exclusively for an exempt purpose or purposes, exemption will be granted 
to such an organization regardless of the purpose or purposes specified 
in its application for exemption. For example, if an organization claims 
exemption on the ground that it is educational, exemption will not be 
denied if, in fact, it is charitable.
    (2) Charitable defined. The term charitable is used in section 
501(c)(3) in its generally accepted legal sense and is, therefore, not 
to be construed as limited by the separate enumeration in section 
501(c)(3) of other tax-exempt purposes which may fall within the broad 
outlines of charity as developed by judicial decisions. Such term 
includes: Relief of the poor and distressed or of the underprivileged; 
advancement of religion; advancement of education or science; erection 
or maintenance of public buildings, monuments, or works; lessening of 
the burdens of Government; and promotion of social welfare by 
organizations designed to accomplish any of the above purposes, or (i) 
to lessen neighborhood tensions; (ii) to eliminate prejudice and 
discrimination; (iii) to defend human and civil rights secured by law; 
or (iv) to combat community deterioration and juvenile delinquency. The 
fact that an organization which is organized and operated for the relief 
of indigent persons may receive voluntary contributions from the persons 
intended to be relieved will not necessarily prevent such organization 
from being exempt as an organization organized and operated exclusively 
for charitable purposes. The fact that an organization, in carrying out 
its primary purpose, advocates social or civic changes or presents 
opinion on controversial issues with the intention of molding public 
opinion or creating public sentiment to an acceptance of its views does 
not preclude such organization from qualifying under section 501(c)(3) 
so long as it is not an action organization of any one of the types 
described in paragraph (c)(3) of this section.
    (3) Educational defined--(i) In general. The term educational, as 
used in section 501(c)(3), relates to:
    (a) The instruction or training of the individual for the purpose of 
improving or developing his capabilities; or

[[Page 15]]

    (b) The instruction of the public on subjects useful to the 
individual and beneficial to the community.

An organization may be educational even though it advocates a particular 
position or viewpoint so long as it presents a sufficiently full and 
fair exposition of the pertinent facts as to permit an individual or the 
public to form an independent opinion or conclusion. On the other hand, 
an organization is not educational if its principal function is the mere 
presentation of unsupported opinion.
    (ii) Examples of educational organizations. The following are 
examples of organizations which, if they otherwise meet the requirements 
of this section, are educational:

    Example 1. An organization, such as a primary or secondary school, a 
college, or a professional or trade school, which has a regularly 
scheduled curriculum, a regular faculty, and a regularly enrolled body 
of students in attendance at a place where the educational activities 
are regularly carried on.
    Example 2. An organization whose activities consist of presenting 
public discussion groups, forums, panels, lectures, or other similar 
programs. Such programs may be on radio or television.
    Example 3. An organization which presents a course of instruction by 
means of correspondence or through the utilization of television or 
radio.
    Example 4. useums, zoos, planetariums, symphony orchestras, and 
other similar organizations.

    (4) Testing for public safety defined. The term testing for public 
safety, as used in section 501(c)(3), includes the testing of consumer 
products, such as electrical products, to determine whether they are 
safe for use by the general public.
    (5) Scientific defined. (i) Since an organization may meet the 
requirements of section 501(c)(3) only if it serves a public rather than 
a private interest, a scientific organization must be organized and 
operated in the public interest (see subparagraph (1)(ii) of this 
paragraph). Therefore, the term scientific, as used in section 
501(c)(3), includes the carrying on of scientific research in the public 
interest. Research when taken alone is a word with various meanings; it 
is not synonymous with scientific; and the nature of particular research 
depends upon the purpose which it serves. For research to be scientific, 
within the meaning of section 501(c)(3), it must be carried on in 
furtherance of a scientific purpose. The determination as to whether 
research is scientific does not depend on whether such research is 
classified as fundamental or basic as contrasted with applied or 
practical. On the other hand, for purposes of the exclusion from 
unrelated business taxable income provided by section 512(b)(9), it is 
necessary to determine whether the organization is operated primarily 
for purposes of carrying on fundamental, as contrasted with applied, 
research.

    (ii) Scientific research does not include activities of a type 
ordinarily carried on as an incident to commercial or industrial 
operations, as, for example, the ordinary testing or inspection of 
materials or products or the designing or construction of equipment, 
buildings, etc.

    (iii) Scientific research will be regarded as carried on in the 
public interest:

    (a) If the results of such research (including any patents, 
copyrights, processes, or formulae resulting from such research) are 
made available to the public on a nondiscriminatory basis;

    (b) If such research is performed for the United States, or any of 
its agencies or instrumentalities, or for a State or political 
subdivision thereof; or

    (c) If such research is directed toward benefiting the public. The 
following are examples of scientific research which will be considered 
as directed toward benefiting the public, and, therefore, which will be 
regarded as carried on in the public interest: (1) Scientific research 
carried on for the purpose of aiding in the scientific education of 
college or university students; (2) scientific research carried on for 
the purpose of obtaining scientific information, which is published in a 
treatise, thesis, trade publication, or in any other form that is 
available to the interested public; (3) scientific research

[[Page 16]]

carried on for the purpose of discovering a cure for a disease; or (4) 
scientific research carried on for the purpose of aiding a community or 
geographical area by attracting new industry to the community or area or 
by encouraging the development of, or retention of, an industry in the 
community or area. Scientific research described in this subdivision 
will be regarded as carried on in the public interest even though such 
research is performed pursuant to a contract or agreement under which 
the sponsor or sponsors of the research have the right to obtain 
ownership or control of any patents, copyrights, processes, or formulae 
resulting from such research.
    (iv) An organization will not be regarded as organized and operated 
for the purpose of carrying on scientific research in the public 
interest and, consequently, will not qualify under section 501(c)(3) as 
a scientific organization, if:
    (a) Such organization will perform research only for persons which 
are (directly or indirectly) its creators and which are not described in 
section 501(c)(3), or
    (b) Such organization retains (directly or indirectly) the ownership 
or control of more than an insubstantial portion of the patents, 
copyrights, processes, or formulae resulting from its research and does 
not make such patents, copyrights, processes, or formulae available to 
the public. For purposes of this subdivision, a patent, copyright, 
process, or formula shall be considered as made available to the public 
if such patent, copyright, process, or formula is made available to the 
public on a nondiscriminatory basis. In addition, although one person is 
granted the exclusive right to the use of a patent, copyright, process, 
or formula, such patent, copyright, process, or formula shall be 
considered as made available to the public if the granting of such 
exclusive right is the only practicable manner in which the patent, 
copyright, process, or formula can be utilized to benefit the public. In 
such a case, however, the research from which the patent, copyright, 
process, or formula resulted will be regarded as carried on in the 
public interest (within the meaning of subdivision (iii) of this 
subparagraph) only if it is carried on for a person described in 
subdivision (iii)(b) of this subparagraph or if it is scientific 
research described in subdivision (iii)(c) of this subparagraph.
    (v) The fact that any organization (including a college, university, 
or hospital) carries on research which is not in furtherance of an 
exempt purpose described in section 501(c)(3) will not preclude such 
organization from meeting the requirements of section 501(c)(3) so long 
as the organization meets the organizational test and is not operated 
for the primary purpose of carrying on such research (see paragraph (e) 
of this section, relating to organizations carrying on a trade or 
business). See paragraph (a)(5) of Sec. 1.513-2, with respect to 
research which constitutes an unrelated trade or business, and section 
512(b) (7), (8), and (9), with respect to income derived from research 
which is excludable from the tax on unrelated business income.
    (vi) The regulations in this subparagraph are applicable with 
respect to taxable years beginning after December 31, 1960.
    (e) Organizations carrying on trade or business--(1) In general. An 
organization may meet the requirements of section 501(c)(3) although it 
operates a trade or business as a substantial part of its activities, if 
the operation of such trade or business is in furtherance of the 
organization's exempt purpose or purposes and if the organization is not 
organized or operated for the primary purpose of carrying on an 
unrelated trade or business, as defined in section 513. In determining 
the existence or nonexistence of such primary purpose, all the 
circumstances must be considered, including the size and extent of the 
trade or business and the size and extent of the activities which are in 
furtherance of one or more exempt purposes. An organization which is 
organized and operated for the primary purpose of carrying on an 
unrelated trade or business is not exempt under section 501(c)(3) even 
though it has certain religious purposes, its property is held in 
common, and its profits do not inure to the benefit of individual 
members of the organization. See, however, section 501(d) and Sec. 
1.501(d)-1, relating to religious and apostolic organizations.

[[Page 17]]

    (2) Taxation of unrelated business income. For provisions relating 
to the taxation of unrelated business income of certain organizations 
described in section 501(c)(3), see sections 511 to 515, inclusive, and 
the regulations thereunder.
    (f) Applicability of regulations in this section. The regulations in 
this section are, except as otherwise expressly provided, applicable 
with respect to taxable years beginning after July 26, 1959. For the 
rules applicable with respect to taxable years beginning before July 27, 
1959, see 26 CFR (1939) 39.101(6)-1 (Regulations 118) as made applicable 
to the Code by Treasury Decision 6091, approved August 16, 1954 (19 FR 
5167; C.B. 1954-2, 47).

[T.D. 6500, 25 FR 11737, Nov. 26, 1960, as amended by T.D. 6525, 26 FR 
189, Jan. 11, 1961; T.D. 6939, 32 FR 17661, Dec. 12, 1967; T.D. 7428, 41 
FR 34620, Aug. 16, 1976; T.D. 8308, 55 FR 35587, Aug. 31, 1990]